Munjals raise Rs 1.9k crore for Pipavav stake

MUMBAI: A sale of 70 lakh equity shares by the Brijmohan Lall Munjal-led Hero Group in its flagship Hero MotoCorp to raise Rs 1,865 crore on Wednesday led to two contrasting reactions in the stock markets. On the one hand, it led to a 5% decline in the stock of the motorcycle maker, while on the other, it fired up shares of Nikhil Gandhi-promoted Pipavav Defence and Offshore Engineering, which jumped 20%.The market anticipates that the amount raised by the Hero Group may be used to make a competing bid for the ship builder with naval capabilities, for which Mahindra & Mahindra is also learnt to be a suitor.
The news led to a sharp spurt in the stock price of Pipavav Defence, which rose the maximum possible 20% before closing 12.5% up at Rs 78. The Munjals’ entry in the race for Pipavav Defence, for which M&M was considered the front-runner, is sure to make this a hotly contested battle for taking over the ship builder.
Defence has emerged as one of the hottest new markets for India Inc with all major corporate houses, including the Tatas, the Mahindras and the Ambanis, seeking a slice of the pie. The Narendra Modi government has allowed 49% FDI in defence and is encouraging domestic production under its ‘Make in India’ policy.
“The Munjals are likely to rival M&M in the deal as they will seek an equal joint venture with Gandhi. Since the Munjals don’t have any experience in the defence sector, Gandhi may get to retain management control of the company while a deal with the Mahindras may have led to his exit from Pipavav Defence’s management,” said a source.
Bain Capital, which had helped Munjals buy out Japanese auto major Honda’s stake in Hero Honda, is also helping the Munjals in the current deal, sources said. However, M&M would have been an ideal fit since Pipavav’s naval strengths could have complimented the Anand Mahindra-led group’s aerospace & army capabilities.
According to S P Tulsian, an independent investment adviser, the day’s stake sale by the Munjals in Hero MotoCorp points towards them entering the race for Pipavav Defence. “This is because the initial deal size will be in the range of Rs 1,800-2,000 crore, of which Rs 1,200 crore is expected to be for about 20% stake in the company and rest for meeting capital expenditure,” Tulsian said. He feels the Munjals are looking to diversify as there is not much upside in its core two-wheeler market in India amid growing competition.
Mahindra and Gandhi didn’t respond to TOI queries.
The Munjals’ 3.5% stake in the two-wheeler maker was sold through block deals on the NSE to 30 institutional investors. After this transaction, the Hero Group will continue to hold 36% in Hero MotoCorp, valuing the promoters’ stake at Rs 19,150 crore.